US Economy: Consumer Spending, Confidence Fall on Job Worries
Oct. 30 (Bloomberg) -- Americans cut spending for the firsttime in five months and a gauge of confidence weakened,signaling consumers will make a limited contribution to therecovery without government incentives.
Consumer spending fell 0.5 percent in September after a 1.4percent jump in August, Commerce Department figures showed todayin Washington. The Reuters/University of Michigan final index ofconsumer sentiment decreased to 70.6 in October from 73.5 themonth before.
Mounting jobs losses, stagnant incomes and the expirationof programs such as the cash-for-clunkers auto rebates threatento hold back household spending as the nation emerges from arecession. An unexpected improvement in an index of businessactivity reported separately today supports forecasts thatmanufacturing may help fill the void and propel the expansionthat started last quarter.
“Manufacturing growth is going to be robust and broad-based,” said Dean Maki, chief U.S. economist at BarclaysCapital Inc. in New York. “Consumers are waiting to see whetherthe job market will improve before confidence takes another bigleg up. That’s coming, but it’ll be a gradual process.”
Stocks fell after the consumer spending report, with theStandard & Poor’s 500 Index down 1 percent to 1,055.77 at 11:23a.m. in New York. Treasury securities rose, pushing the yield onthe 10-year note down to 3.44 percent from 3.50 percent lateyesterday.
Business Barometer
The Institute for Supply Management-Chicago Inc. said itsbusiness barometer increased to 54.2, the highest level in 13months. The gauge was forecast to rise to 49, the medianestimate of 58 economists in a Bloomberg News survey. Readingsabove 50 signal an expansion.
The drop in consumer spending matched the estimate in aBloomberg survey of 75 economists. The University of Michiganindex was forecast to fall to 70 in a Bloomberg survey of 60economists.
Employment expenses rose 0.4 percent in the third quarterand wages had the smallest 12-month gain since 1982, figuresfrom the Labor Department also showed today. The increase in theemployment-cost index was the same as the gain in the secondquarter and followed a 0.3 percent increase in the first quarterwas the smallest since records began in 1996.
Wages and salaries dropped 0.2 percent after a 0.2 percentgain the prior month, the Commerce Department report showed. Thereport also indicated that inflation isn’t a threat, givingFederal Reserve policy makers more reason to repeat theirpromise to keep interest rates low for an “extended period”when they meet next week.
Price Measure
The Fed’s preferred price measure, which excludes food andfuel, climbed 0.1 percent from the previous month and was up 1.3percent from a year earlier, matching the 12-month gain inAugust that was the smallest since 2001.
The decrease in spending pushed the savings rate up to 3.3percent last month from 2.8 percent.
Disposable income, or the money left over after taxes, wasunchanged after rising 0.1 percent the previous month. Adjustedfor inflation, disposable income dropped 0.1 percent.
Inflation-adjusted spending on durable goods, such asautos, furniture, and other long-lasting items, fell 7.2 percentlast month after increasing 6.7 percent in the prior month.
Kellogg Co., the largest U.S. breakfast-cereal maker,yesterday reported third-quarter profit that exceeded analysts’estimates as costs fell more than sales.
“Consumers remain nervous and are more value consciousthan they were a couple of years ago,” Chief Executive OfficerDavid Mackay said in a telephone interview. “We have to bepragmatic about consumers and the issues and pressures theyface, and try to help them in any way we can.”
Unemployment Rises
The unemployment rate reached a 26-year high of 9.8 percentin September, up from 7.6 percent from when President BarackObama took office in January. Economists project the joblessrate will exceed 10 percent by early 2010.
Since the recession began in December 2007, the U.S. haslost 7.2 million jobs. Payroll cuts peaked at 741,000 in Januarybefore falling to 263,000 job losses in September.
The economy grew in the third quarter for the first time inmore than a year, propelled by emergency programs to boostbuying of cars and homes, according to Commerce Departmentfigures released yesterday. Gross domestic product expanded at a3.5 percent annual pace.
The report also showed that companies are slowing the paceof inventory reductions, paving the way for increases inproduction to meet demand fueled by more than $2 trillion inglobal government stimulus programs.
Businesses seeing steadier demand include Caterpillar Inc.,the world’s largest maker of bulldozers and excavators, whichissued a full-year profit forecast exceeding the highestprediction from analysts.
“We are seeing encouraging signs that indicate a recoverymay be under way,” Jim Owens, chief executive officer of thePeoria, Illinois-based company, said in a statement on Oct. 20.“We’ve already started planning for an upturn.”
To contact the reporters on this story:Timothy R. Homan in Washington at thoman1@bloomberg.net;Courtney Schlisserman in Washington cschlisserma@bloomberg.net
Last Updated: October 30, 2009 11:30 EDTSource: Bloomberg
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